When Do Corporations Have To File Taxes – One of the main reasons for incorporating a company in Singapore is the country’s low corporate tax rate. This article covers the following aspects of Singapore’s corporate tax rate:
The current tax rate in Singapore is capped at 17%. However, with the tax exemption and incentive programs offered by the Singapore government, the effective corporate tax rate in Singapore can be quite low.
When Do Corporations Have To File Taxes
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Under Singapore’s territorial tax system, qualified income earned in Singapore and income remitted to Singapore from foreign sources are taxable. Taxable income in Singapore includes:
From Singapore. IRAS refers to “decision-making on strategic issues such as company policy and strategy” that is appropriate, controlled and managed.
In general, the location of board meetings is a key factor in determining where a company is controlled and managed. In addition, the location of the company’s employees, who play an important role in the company’s decision-making, can also determine tax residency.
Generally, if the board of directors meetings and key management personnel are outside Singapore, the company is considered non-resident, even if the company’s day-to-day operations are in Singapore.
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For example, foreign holding companies that receive passive income are generally considered non-resident because these companies are managed under the direction of their owners and shareholders located outside of Singapore.
To help local companies grow, Singapore introduced a new start-up company scheme in 2005, which provides for tax exemptions on some start-up profits. Under the scheme, new companies that meet the following qualifying criteria will receive the following tax benefits for the first three consecutive YAs, depending on where the YA falls:
Eligible new companies are granted a 75% tax exemption on the first S$100,000 of taxable income and an additional 50% tax exemption on the next S$100,000.
Eligible new companies are granted a full, i.e. 100% tax exemption on S$100,000 of taxable income and an additional 50% tax exemption on the next S$200,000.
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All companies are eligible for PTE unless the company claims it under the tax exemption scheme for new start-ups. Under PTE, companies enjoy the following benefits.
If the company meets the criteria defined below, the following tax incentive schemes are available to further reduce the company’s taxable income.
Development and Expansion Incentive (DEI): DEI is available for companies planning to increase or renew their operations in Singapore or expand into leading global industries. All income from qualified activities under DEI is exempt from tax or taxed at 10% for a period of 5 years.
Productivity and Innovation Credit (PIC) Scheme: The PIC offers companies a 400% tax credit or rebate on certain expenditure on any of the following six qualifying activities:
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Investment Allowance: Under the Investment Allowance, companies can claim a tax credit of up to 100% of capital expenditure on qualifying projects during the tax year. Generally, Singapore allows an investment exemption for a period of 5 years; however, some cases may take up to 8 years. The types of projects eligible for the investment allowance include:
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To file corporate tax returns, a company must submit two applications to IRAS (Inland Revenue Authority of Singapore):
For more information on filing your tax return with IRAS, see our guide to filing your annual return in Singapore.
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It is important to understand the concept of year of assessment (or YA) and base period for Singapore tax assessment. The income of the company in the previous financial year is taxable. This means that income earned in the 2018 financial year will be taxable in 2019. In this example, 2019 is the Year of Assessment (YA). Thus, YA is the year in which your income is taxable. To estimate the amount of tax, the IRAS takes into account the income, expenses, etc. during the financial year. This financial year is known as the ‘base period’. The baseline period is usually the 12-month period preceding YA. Thus, if a company’s financial year end is on 31st March of each year, its base period for YA 2019 will be from 1st April 2017 to 31st March 2018.
Singapore has signed Double Taxation Agreements (DTAs or DTAAs) with more than 80 jurisdictions, including major economies in the Americas, Europe and Asia, to reduce the tax burden on companies deriving income from foreign sources. DTAs reduce or eliminate taxes on foreign income already taxed in a foreign jurisdiction. More information on some of these agreements (eg India Singapore DTAA / DTA, Singapore Australia DTA / DTAA, UK Singapore DTA / DTAA, Malaysia-Singapore DTA / DTAA etc.) can be found here.
A tax credit may also be available in some cases. If foreign tax is paid in accordance with the DTA provisions, the lesser of a) the foreign tax paid and b) the Singapore tax payable on that income is calculated. If a company has paid any excess tax in a foreign country, this estimated amount can be claimed as a tax credit in Singapore, known as Double Taxation Relief (DTR). Under DTR, a company can claim some of the foreign income tax it has paid from Singapore income tax and get that money back from IRAS.
In addition, since 2008, the Singapore government has offered a unilateral tax credit to companies with foreign income derived from jurisdictions that do not have a DTA with Singapore.
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Singapore is one of the most tax-friendly jurisdictions in the world. With a low basic tax rate and generous tax exemptions and incentives, companies in Singapore can significantly reduce their tax costs. In addition, tax exemptions on capital gains and dividends ensure that shareholders get more return on investment.
Finally, efforts by the Singapore government to sign double tax treaties have allowed companies to register in Singapore and expand internationally without the burden of paying additional taxes on foreign earnings.
Our company will be a general trading company. We buy goods from China and sell them to other countries. Goods are shipped directly from mainland China to those countries. Our Singapore company negotiates with our suppliers and customers and manages accounts payable and receivable. Will we be taxed in Singapore in this case?
Yes, your profits are taxable in Singapore. There is only a limited range of tax-exempt types of foreign income. Specifically, there are only 3 categories of such income (and they are further subject to the following conditions, one of which is being in Singapore):
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Tax exemption under Section 13(9) of the Income Tax Act is available for the above 3 categories of foreign source income when all the following three conditions are fulfilled:
Bottom line: You cannot use a Singapore entity to avoid paying taxes at all. Your business income must be taxed overseas (through an overseas branch or subsidiary of your Singapore company) or your income must be taxed in Singapore.
ECI and FORM C are both issued annually and can be submitted electronically. Splitting the tax return filing into two separate steps (ECI and FORM C) is a smart strategy for the Singapore government for the following reasons:
Small companies are allowed to file a simplified version of Form C called Form C-S. A company is eligible to issue a C-S form if it meets the following conditions:
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GST-registered companies must file Goods and Services Tax (GST) payments and returns. For more information, see the Guide to Filing GST Returns.
All Singapore incorporated companies are required to prepare their financial statements in accordance with Singapore Financial Reporting Standards (SFRS) as formulated by the Accounting Standards Board (or ASC). These standards are mainly based on International Financial Reporting Standards (IFRS).
One of the foundations of Singapore accounting standards is accrual accounting. According to this concept, revenues are recorded when they are received and expenses are recorded when they are incurred. In addition, in the financial statements prepared on this basis, liabilities for the payment of cash in the future are recorded.
Note that small companies in Singapore can follow a simplified version of the accounting standards known as the Singapore Financial Reporting Standards for Small Entities (SFRS).
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Are there any exemptions for filing Singapore corporate tax returns? For example, does a dormant company need to file a tax return?
All companies must file a corporate tax return. However, if a dormant company is granted a waiver of income tax return filing, it is allowed to skip filing. In order to be exempted from submitting an income tax return, the company must fulfill the following conditions:
The basic rate of corporate income tax is the basic rate of taxation before deductions for various factors, such as tax exemptions,
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